The 20-month trade war between China and the United States has promoted a profound change in the global soybean market, although the oilseed is not the main reason for the dispute between the two largest economies in the world. According to experts, although the news brings information about a previous agreement, the much talked about 'phase one' of a total agreement and headlines like these, the conflict is far, far from over.
A recent headline from the international news agency Bloomberg says “the case is only growing for an eternal economic war”. The discussions have long gone beyond the barriers of tariffs to reach a severe political space where each event will be used effectively for opponents to attack each other.
“The art of the trade agreement is the art of knowing how to exploit your opponent’s domestic politics”, says the international agency’s analysis. And on both sides, this exploration happens very effectively.
According to information gathered by Agrinvest Commodities this Monday, November 18, Beijing changed its strategy regarding the signing of phase one of the previous agreement with the USA, as it comes up against the removal of tariffs. While the Asian nation seeks to raise taxes, American President Donald Trump does not accept the measure.
“Thus, China will have to wait for a decision on Trump’s impeachment or the 2020 elections,” says Agrinvest. Two weeks ago, American and Chinese leaders decided to withdraw, however, the US president states that the order is that tariffs on products from China will only be removed in the final agreement. “At this moment, leaders in Beijing are pessimistic about the signing of an agreement, which could generate a turnaround in the negotiations and cause more pressure on the prices of some of the main commodities such as soybeans traded in Chicago and cotton in New York. ”, adds the consultancy.
SOY TRADE
Although a little better, the pace of soybean purchases by China in the US still disappoints the market and, according to oilseeds analyst Monica Tu, from Shanghai Intelligence Co., interviewed by Bloomberg, the total of the North American commodity sent to the Asian nation should only account for something between 10% and 15% of what was announced in January.
“Buyers are very cautious,” says Monica. Still, they turn to American oilseeds due to the lack of Brazilian product available to meet their needs. In the last week alone, the Chinese purchased around seven ships of US soybeans for shipments in December and January.
For some, China's soybean purchases in the US have served as a kind of thermometer for negotiations between the two countries. For others, it is just this lower availability of the product in Brazil, which harvested a smaller harvest in the 2018/19 season and still reaches impressive export numbers, exceeding 70 million tons.
In the same week, confirming this intense movement in Chinese demand for Brazilian soybeans, the country purchased 16 ships of the national oilseed, as reported by the director of SIMConsult, Liones Severo. “The Chinese need American soybeans in the South American off-season,” he says.
The changes, according to Severo, should be definitive when it comes to global soybean trade. “The fact is that the Atlantic agricultural trade axis was transferred from the USA to South America, which are the largest exporters of soybeans and corn. Just as we saw the consumption center taking root in the Pacific axis”, he explains.
And it is for this and other reasons that the expert believes that the path that is being charted, at this moment, is for Brazil to become a price benchmark. “The price formation will be from Brazil. It was time to use our leading role”, believes Severo.
The director of SIMConsult also believes that the formation of values for soybeans via the Chicago Stock Exchange is a pattern with an expired expiration date, in addition to stating that the effects of this dispute no longer weigh so heavily on the progress of the international market.
“The influences and impacts (of the trade war) have already been overcome by time and nothing will change, in any case. He finished. Funds are exiting their positions because there is no way to remunerate their capital. The market in Chicago was demonized and lost its importance”, he says. Still, as Severo explains, this is a definitive process. “Money by money markets have been defeated. The world turns to the product and that's what we have. It is time for disruptions and they are already happening.”
HISTORIC
The rifts in relations between China and the United States date back long before the start of the declared trade war started by Donald Trump in March 2018. Perhaps that is why there is already a consensus among analysts, consultants, economists and political scientists that the end of this conflict is still in sight. distant.
“There is no end in sight for this trade war. We have no news, we have some behind-the-scenes information about communication difficulties between them, quantities, prices, when things start to happen, the Chinese don't want to get too caught up, but there is little news”, says Tarso Veloso, director of ARC Mercosul , straight from Chicago.
And this history that relations between the two countries have had for a long time has come to the fore even more since Trump began his presidential campaign, hardening his rhetoric against the Chinese and using a campaign promise to treat the issue differently.
NORTH AMERICAN AGRICULTURE
And although the problems in North American agriculture have worsened with the start of the trade war, Liones Severo recalls that they date back long before the start of the dispute and therefore need to be studied in more depth. “Producers’ losses date back to 2014, and American corn has never had an impact on the Chinese market. Corn is the most depreciated American agricultural product”, he explains.
The North American cereal market has been registering prices below production costs for some time, in addition to seeing its competitiveness being reduced with Brazil and Argentina selling their products in local currency, which inevitably depreciates the value in dollars. “So much so that the most depressed prices in the last 4 years corresponded to the biggest devaluations of the real”, explains Liones Severo.
In 2019, agricultural bankruptcies in the US recorded their highest rate since 2011, with an increase of 24%. According to the American Farm Bureau Federation, given this situation, North American rural producers are increasingly dependent on the North American government's subsidy and income guarantee programs.
Next week, according to the Allendale, Inc. consultancy portal, the USDA (United States Department of Agriculture) will begin its second round of payments of the subsidy promised by the Trmp government for this year 2019. The operation is the second part of three of a government-announced US$16 billion aid package, which aims to compensate farmers harmed by the trade war.
On Twitter, Trump said this Sunday (17): “Our large producers will receive another amount of “money”, with tariff compliance from China, before Thanksgiving. The smallest producers and properties will benefit the most. Also, and as you may have already been informed, China is starting to make large purchases again. Deal with Japan DONE. Enjoy!".
